Strike prices take center stage

Last week the government announced the proposed strike prices for renewables up to 2020 that will help them contribute more than 30% of total power by 2020. The strike price for onshore wind, which will be £100/MWh for 2014-2017 and £95/MWh in 2017-2019, has been long awaited and will provide developers and investors with much needed confidence in relation to future investment plans. The levels of support proposed are in line with those offered under the Renewables Obligation but it is hoped the increased certainty the Contracts for Difference bring will facilitate the step change in investment needed to unlock the reported £110 billion needed to support energy infrastructure investment to 2020.

The announcement came earlier than expected despite having been discussed for a long time in response to pleas from both developers and investors for greater clarity. We believe the reduced risk associated with the contracts for difference will increase investor appetite in wind and solar power, in particular from institutional investors who have previously refrained from this type of investment. Further announcements are planned to be announced on 18 July.

The projected strike prices form part of the Government’s Electricity Market Reform package and will be made available to qualifying projects from next year. The strike prices are supported by the £7.6 billion levy control framework agreed by the government to support the necessary infrastructure spending in the energy system. Further details on the contractual arrangements need to be clarified but this announcement sets the stage for future investments in low carbon generation in the future.